Brazilian agribusiness crisis slash down farmland prices

Jose Sergio Osse | Apr 06, 2006

Once a very well-priced asset, farmland in Brazil is selling fast and cheap. The most hard-hit areas in Brazil are those mostly dedicated to soybeans and newest to agriculture, having been farmed 20 or 30 years.

Falling soybean prices are behind this rural real estate crisis in Brazil, a private analysis firm says. The soybean production industry has been hit so hard in the past season that fewer and fewer people are inclined to invest in it.

Setbacks in cotton production have also helped to promote this fall in land values. Even those who have invested in agriculture for a long time are now revaluating, and some are leaving their land in search of new and different opportunities.

According to the study conducted by FNP, one of the major Brazilian agribusiness analysis companies, farmland prices are so low, and have fallen so fast, that they’ll be able to climb back to 2004’s level only in 10 or more years. Even this forecast is considered optimistic for some farmers and analysts.

Since the early agricultural exploration of the Brazilian states of Mato Grosso and Mato Grosso do Sul between the late 1960s and 1980s, prices have never had such enormous variation, especially at these low levels.

The price of farmland in Mato Grosso state, the major soybean producer in Brazil, has fallen from an average of $570 an acre in October 2004 to $276 an acre in January 2006, a decline of 48 percent. This precipitous drop in price is not likely to turn around in the near future.

The lack of people interested in buying this land even at bargain-level prices is just one of many indications that this grim picture is not an exaggerated one.

“Soybean prices surely have had an important role in this devaluation. After all, more than half the 40 million hectares (98 million acres) in this area are covered with soybeans,” says Pablo Paulino Lopes, the agronomist who conducted the analysis.

Loss of cotton production is also important, due to the large amount of money cotton farmers have to pour into their crops for them to be profitable.

Areas of the country with poor, sandy, soil substrates, such as Diamantino, Itiquira, Primavera do Leste and Campo Verde, are being abandoned. “Actually, what we’ve been seeing in this area is that farmers are turning over their rented producing areas to their tenants, and that there are very few interested new buyers,” says Lopes.

In Diamantino and Nova Ubiratã, in mid-center Mato Grosse, the land price has fallen from an average of $1,000 per acre to $690 per acre. In Sorriso, another major soybean producing region in southern Mato Grosso, land values have fallen from $1,380 per acre to a $1,000 per acre.

Worst of all, in Lopes opinion, is that farmland prices were experiencing a time of growth. In Sorriso, for instance, land values had been climbing for at least two years — in 2002, the average price for an acre in the region was $1,300.

Another concern raised by many is that with low prices and few local investors, foreign investors could start to gain ground in Brazil. Brazil’s biggest concerns are American and Australian investors, especially Americans. Although Brazilian currency is maintaining a relatively high price against dollar, prices are attractive to well-funded and bold American investors.

“We may see, should this situation continue, a growing number of American neighbors, planting their soybean fields next to ours.”

In other words, “our international competitor would become the person we share fences with, and they’ll benefit both by their status as American producers, and by the relatively low cost Brazil has to offer,” says a farmer in Sorriso.

Jose Sergio Osse is a Brazilian agricultural journalist and owns a public relations firm in Sao Paulo. He has worked as a press advisor for Syngenta, Brazil, and as an agricultural reporter for the country’s major newspaper.